Cardtronics (NASDAQ:CATM)

CAPS Rating: 2 out of 5

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Player Avatar jbarry7757 (< 20) Submitted: 12/31/2007 12:28:38 PM : Underperform Start Price: $10.01 CATM Score: -236.41

Anyone investing in this company at this time must have their head examined, or they have done very little research on the industry.

First of all, Cardtronics is the industry leader of what is called the off-premise ATM market, ATMs installed in retail locations and operated for a profit (hopefully). The problem is that this market has been on the down-slide for quite some time with no end in sight, cardholders are getting tired of paying surcharges at ATMs and there is a move in the country towards surcharge free networks. Per ATM transaction count, the heart of the industry, has been steadily declining for the last 5 years and will continue to do so (check out what has also happened to Triton).

The company invested into Allpoint, a surcharge free ATM network, but there is no significant growht in this sector either from a per ATM revenue perspective.

Their investments into international expansion have been questionable, at best. First of all they went into an ill-fated bidding war with TRM in the UK to purchase local companies to get market share, they grossly overpaid for all these acquisitions (see where TRM is today, almost out of business). There is a very strong anti-surcharge culture in the UK so this business model will nto be as successful there as it was in the US>

Their entry into Mexico 2 years ago has also not gone as expected, they had a two year lead which they squandered. Now there are many other US and Canadian companies entering the market and the surcharge model has not been proven in Mexico.

They have done well with ATM branding deals with banks, but how many more can they do to sustain profitability.

Lastly, they have a very large ATM network (close to 25K machines), putting into perspective, they are two times the size of the largest bank ATM network, Bank of America. Given their business model, the more they grow the more expensive it will become for them to sustain the business, with cost of cash and transportation increasing. Do they have the financial resources of a BofA to maintain that network? Only if they keep on selling shares to unsuspecting investors.

Long term, this is a very bad investment if they keep their current business model. TRM tried it and failed. I predict $7 a share within 12 months......

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